UTC-Goodrich Deal Creates New Division In Charlotte, N.C.

The company that designed the astronaut space suit in the 1960s is buying the company that invented the airplaine pilot pressurized suit in the 1930s.

United Technologies Corp's $18.4 billion deal to acquire aerospace competitor Goodrich Corp. will certainly reshape UTC's Hamilton Sundstrand division — long the steward of the space suit — adding wheels, landing gear and brakes to the interior and electronic systems already designed and manufactured by the Windsor Locks-based division.

But the deal, announced Wednesday night, also would fold Hamilton Sundstrand into a much larger division — UTC Aerospace Systems — that includes three Goodrich businesses: electronic systems, landing systems and interior systems. The new division would be based in Charlotte, N.C., which now serves as Goodrich's headquarters, and be headed by Goodrich's CEO.

It remained unclear Thursday what the changes might mean for employment at Hamilton Sundstrand's headquarters and plant in Windsor Locks, where there are now about 4,000 workers. A UTC spokesman declined to elaborate.

UTC and Goodrich executives told Wall Street analysts in a conference call Thursday that the good fit between the products offered by Hamilton Sundstrand and Goodrich made the acquisition a good one for UTC, one that will position the company to better be able to take advantage of the expected upswing in commercial aircraft orders.

But the executives also made it clear that a key attraction to the deal was the opportunity to cut costs when combining the two organizations.

UTC Chief Financial Officer Greg Hayes said UTC expects to save $400 million in expenses over a period of years as it integrates the two companies, including consolidation of plants and other facility and cuts in the combined employment base, especially in administrative and back office operations. Hayes did not outline any specifics.

Industry experts said it is likely Windsor Locks will remain a beachhead for UTC, just as Rockford, Ill., did after UTC purchased Sundstrand Corp. in 1999.

"There is very little probability that employment in Windsor Locks would drop vis-à-vis moving to other locations as a result of the acquisition," Mark Bobbi, an aerospace consultant, said.

If anything, Bobbi said, the deal could consolidate more jobs in Windsor Locks from Goodrich plants in West Hartford and Cheshire. The West Hartford plant builds components for engines under 10,000 horsepower, and Cheshire makes aerospace measuring instruments would be a good fit, he said. Together, the two facilities employ about 1,100.

A third plant in Danbury, which makes the mirrors for the Hubble telescope, is less likely to be consolidated because it develops sensitive surveillance equipment and technology, some of it classified, Bobbi said. The plant employs 590.

The deal would be the biggest ever for Hartford-based UTC, and could more than double the company's sales of flight systems and other equipment for jetliners. The acquisition turns on UTC being able to offer more products as part of packages when they bid on jobs; a stronger service and repair business for narrow body jets; and Goodrich's prospects for growing its defense business despite looming cuts to the U.S. defense budget.

UTC offered $127.50 per share in cash for Goodrich stock, for a total of $16.5 billion — a premium of 47 percent over Goodrich's market value on Sept. 15, the day before the merger talks were first reported. Not including the Goodrich deal, UTC has paid a premium of 18 percent in about 30 deals since 2001 for which terms were disclosed, according to Bloomberg News, which compiled the data based on 20-day averages.

UTC will also assume $1.9 billion in Goodrich debt, bringing the total deal to $18.4 billion.

Analysts said Thursday some investors were taken by surprise at the premium paid for Goodrich — and disappointed that the UTC will be issuing stock rather than using cash on hand.

United Technologies "is paying a bit more than expected," said Matt Collins, an analyst at Edward Jones wrote in a note to investors Thursday. "Assuming Boeing and Airbus ramp up production as expected over the next several years this should turn out to be a good deal for [UTC.]"

On Thursday's conference call, Hayes said UTC will make the deal work and add to earnings in the second year. The deal is expected to close in mid-2012.

"We know how to integrate transactions," Hayes said. "We have a dedicated team in place, we'll be looking for these synergies every day."

Nicholas P. Heymann, a analyst at William Blair & Co. in New York, said the premium was designed to prevent other companies from swooping in at the last minute, as was the case with UTC attempted takeover of Honeywell in 2000.

"The price was very fair and pre-empted other acquirers from considering a higher bid," Heymann said.